Multifamily's suburban migration trend might not be the same in Birmingham

In the years after the recession and housing crisis of the late 2000s, apartment developers turned their attention to downtown areas of cities nationwide, and Birmingham was no exception.

The results in Birmingham were dramatic.

The downtown trend yielded a wave of new construction apartment developments in the city center or in city-adjacent areas from roughly 2013 to the present. Ground-up developments like LIV Parkside, Venue at the Ballpark, 20 Midtown, Iron City Lofts, Flats on 4th and several others were built during this period, as were building conversions that included apartments like Pizitz and Thomas Jefferson Tower.

The apartments built in the city helped bring a large amount of residents into the urban core, sparking businesses moving in to take advantage of the activity, as well as new retail and restaurants.

But now another shift is taking place.

Many multifamily experts say they don’t expect any more major apartment projects announced for the city center of Birmingham, as units have leased up and concerns about overbuilding have been raised.

What’s more, national experts say that multifamily developers and investors have begun to turn their attention from urban cores to suburban areas nationwide.

Caitlin Walter, senior director of research at the National Multifamily Housing Council, said it’s something the organization has been tracking closely.

“This is the longest real estate cycle in recent memory, and for most of it, you saw a lot of interest in the urban core,” Walter said. “But now that demand has been met in the urban core, you are starting to see demand in the suburban areas.”

And apartment developers nationwide are turning their attention back to where demand is growing – the suburbs.

But this trend may not catch on in the Birmingham area like it will in other places.

A lack of sites, strict zoning regulations and rising construction costs –not to mention negative perceptions of apartments – means the suburban trend may not be as much of a reality in Birmingham than it is in other markets.

“Talk to any developer and we’ve all done more suburban apartment deals in other markets than we’ve done here because it’s so hard to do it here,” said Bill Dobbins, principal at Dobbins Group.

Behind the suburban shift

Dobbins and others said that in the early part of the cycle to now, in-town development was what the big institutional investors wanted to see, and it was also an opportunity to rent to millennial young professionals who were looking for a more urban and walkable lifestyle.

But with in-town development opportunities came a large amount of competition because there weren’t too many barriers to entry.

Moreover, building downtown apartments is an expensive endeavor.

“As costs have gone up so much, so have rents. People question who can afford it,” Dobbins said. “Suburban apartments are so much more affordable for renters. And the renter pool is so much larger, so that’s attractive. From a developer’s point of view, you can develop for so much less money that there’s less risk there.”

Dobbins said his firm has been focusing more on suburban projects in the last few years, including one in Nashville suburb Mt. Juliet.

“The Mt. Juliet project was based on a case study of getting away from urban construction and delivering a rent that is much more affordable,” Dobbins said. “It has larger units and the finishes in the units are similar, but the rents are half (of what they would be in the city). Many people want to live downtown in a cool apartment if they could, but the reality is that most people can’t afford that.”

From a builder’s perspective, Michael Hendrickson of Capstone Building Corp. said while urban versus suburban projects can be apples versus oranges, in general, suburban projects are easier and cheaper to build.

Hendrickson said urban apartment building includes more challenging logistics issues since it is often a dense multistory building. But in the suburbs, there are usually multiple buildings involved, so more work can be done concurrently.

But apart from chasing demand, investment dollars and lower construction costs, developers face significant challenges as apartment proposals in the suburbs often face opposition from existing residents due to concerns over property values, school overcrowding or traffic congestion.

What to expect in Birmingham

Jeff Downes, city manager for Vestavia Hills, said the Over the Mountain community has around 2,500 apartment units. This represents roughly 15 percent of residential Vestavia, with the other 85 percent being single-family homes. He said that is pretty much on par with other suburban communities.

But even with growing demand for suburban apartments, don’t expect many new apartment projects in Vestavia, or in Hoover, Mountain Brook, Trussville, Pelham, Alabaster or Gardendale.

“In Vestavia, our primary challenge for new apartments is the lack of land,” Downes said.

But zoning is also an enormous issue, as the density of new apartments also brings with it issues with infrastructure.

There’s also a perception that apartments add to school systems, though many say the luxury type of product now trending rarely attracts many families with school-age children.

Proposed multifamily projects in suburban areas, including one in Cahaba Heights and another in Hoover, ended up being canceled in the past few years after backlash from communities.

The one new multifamily development in Vestavia in recent years was Vestavia Reserve, which brought 270 luxury units to the mixed-use Patchwork Farms development along Cahaba River Road.

But Downes said that was a special case that benefited from the other amenities like nearby Lifetime Fitness and the Publix-anchored shopping center.

So, with few development opportunities, several developers are choosing instead to invest in renovating existing apartment properties.

This is especially prevalent along U.S. 31, where Dobbins is currently doing a complete renovation of Tree Top, a 163-unit property built in the 1970s.

The project will involve all new interiors as well as exteriors.

The community will also gain amenities like an upgraded pool, clubhouse and common space enhancements. The property contains one-, two-, and three-bedroom units.

There are similar renovation projects ongoing at V Apartments and the Brookwood, previously Mayfair, also along U.S. 31.

Experts say you can expect to see more renovation of existing properties to meet suburban demand rather than new suburban construction.

But developers say even though that’s challenging, it’s not necessarily a bad thing, as it cuts down on the chances of overdevelopment.

“It’s OK that it’s hard to do, it just doesn’t need to be impossible,” Dobbins said. “Smart development works, whether it’s apartments or retail or whatever, smart development works.”